The word entrepreneur is derived from the French entreprendre, meaning to undertake. The entrepreneur is one who undertakes to organize, manage and assume the risks of a business. In recent years entrepreneurs have been doing so many things that it is necessary to broaden this definition. Today, an entrepreneur is an innovator or developer who recognizes and seizes opportunities, converts those opportunities into workable/marketable ideas, adds value through time, effort, money or skills, assumes the risks of the competitive marketplace to implement these ideas, and realizes the rewards from these efforts.
The entrepreneur is the aggressive catalyst for change in the world of business, and is the independent thinker who dares to be different in a background of common events. The literature of entrepreneurship research reveals some similarities, as well as a great many differences, in the characteristics of entrepreneurs. Chief among these characteristics are personal initiative, the ability to consolidate resources, autonomy, risk taking, competitiveness, goal-orientated behaviour, opportunistic behaviour, reality-based actions and the ability to learn from mistakes.
While no single definition or complete profile of an entrepreneur exists, research is providing an increasingly sharper focus on the subject. A brief review of the history of entrepreneurship illustrates this.
The entire world is currently in the midst of a new wave of business and economic development, and entrepreneurship is its catalyst. Yet the social and economic forces of entrepreneurial activity existed long before the 1990s. In fact, it has been the entrepreneurial spirit that has driven many of mankind’s achievements.
1 Evolution and definition
The recognition of entrepreneurs dates back to the eighteenth century when the French economist Richard Cantillon associated the ‘risk bearing’ activity in the economy with the entrepreneur. In England during the same period the Industrial Revolution was evolving, with the entrepreneur playing a visible role in risk taking and the transformation of resources.
The association of entrepreneurship and economics has long been the accepted norm. In fact, until the 1950s the majority of definitions and references to entrepreneurship had come from economics. Cantillon mentioned above, the renowned French economist Jean Baptiste Say and twentieth-century economic genius Joseph Schumpeter all wrote about entrepreneurship and its impact on economic development. Thus entrepreneurship was introduced by the economists of the eighteenth century, and continued to attract the interest of economists in the nineteenth century. In present times the word has become synonymous, or at least closely linked, with free enterprise and capitalism. Also, it is generally recognized that entrepreneurs serve as agents of change, provide creative, innovative ideas for business enterprises and help businesses grow and become profitable.
Entrepreneurs today are considered the heroes of free enterprise. Many of them have used innovation and creativity to build multi-million dollar enterprises from fledgling businesses. These individuals have created new products and services and have assumed the risks associated with these ventures. Many people now regard entrepreneurship as a pioneership on the frontier of business. One definition, developed by Ronstadt in 1984, summarizes some of the current thoughts concerning entrepreneurship:
Entrepreneurship is the dynamic process of creating incremental wealth. This wealth is created by individuals who assume the major risks in terms of equity, time, and/or career commitment of providing value for some product or service. The product or service itself may or may not be new or unique but value must somehow be infused by the entrepreneur by securing and allocating the necessary skills and resources.
2 The myths of entrepreneurship
Throughout the years many myths have arisen about entrepreneurship. These myths are the result of a lack of research in entrepreneur-ship. As many researchers in the field have noted, the study of entrepreneurship is still in its infancy, and thus ‘folklore’ will tend to prevail until it is dispelled with contemporary research findings. Some of the major myths are discussed below.
‘Entrepreneurs are born, not made’
This myth, which implies that the characteristics of entrepreneurs cannot be taught or learned, that they are innate traits with which one must be born, has long been prevalent (see MANAGERIAL BEHAVIOUR). Today, however, the recognition of entrepreneurship as a discipline is helping to dispel this myth. Like all disciplines, entrepreneurship has models, processes and case studies that allow the topic to be studied and the traits acquired.
‘Entrepreneurs are academic and social misfits’
The belief that entrepreneurs are academically and socially ineffective is a result of some business owners having started successful enterprises after dropping out of school or quitting a job. In many cases such an event has been blown out of proportion in an attempt to profile the typical entrepreneur. Historically, in fact, educational and social organizations did not recognize the entrepreneur. They abandoned him or her as a misfit in a world of corporate giants. Business education, for example, was aimed primarily at the study of corporate activity (see BUSINESS SCHOOLS). Today the entrepreneur is considered a hero socially, economically and academically. No longer a misfit, the entrepreneur is now viewed as a professional.
‘Entrepreneurs fit an ideal profile’
Many books and articles have presented checklists of characteristics of the successful entrepreneur. These lists were neither validated nor complete; they were based on case studies and on research findings among achievement-orientated people. Today we realize that a standard entrepreneurial profile is hard to compile. The environment, the venture itself, and the entrepreneur have interactive effects, which result in many different types of profiles. Contemporary studies being conducted at universities across the world will, in the future, provide more accurate insights into the various profiles of successful entrepreneurs.
‘All you need is money to be an entrepreneur’
It is true that a venture needs capital to survive; it is also true that a large number of business failures occur because of lack of adequate financing. Yet having money is not the only bulwark against failure. Failure due to a lack of proper financing is often an indicator of other problems: managerial incompetence, lack of financial understanding, poor investments, poor planning, etc.
‘All you need is luck to be an entrepreneur’
Being in ‘the right place at the right time’ is always an advantage, but ‘luck happens when preparation meets opportunity’ is an equally appropriate adage. Prepared entrepreneurs who seize the opportunity when it arises often appear to be ‘lucky’. They are, in fact, simply better prepared to deal with situations and turn them into successes. What appears to be luck really is preparation, determination, desire, knowledge and innovativeness.
3 Approaches to entrepreneurship
In the study of contemporary entrepreneur-ship, there is one recurring concept: entrepreneurship is an interdisciplinary concept. As such it contains various approaches that can be used to increase one’s understanding of the field. Thus there is a need to recognize the diversity of theories as an emergence of entrepreneurial understanding. One way to examine these theories is with a ‘schools of thought’ approach that divides entrepreneur-ship into specific activities. Another way is through a process approach that blends the elements into multi-faceted models. In this section we shall highlight the ideas emanating from the macro and micro views of entrepreneurial thought, and we shall further break down these two major views into six distinct schools of thought, three within each entrepreneurial view. While this presentation does not purport to be all inclusive, neither does it claim to limit the schools to these six, for a movement may develop for unification or expansion.
The macro view
The macro view of entrepreneurship presents a broad array of factors that relate to success or failure in contemporary entrepreneurial ventures. These include external processes that are sometimes beyond the control of the individual entrepreneur, for they exhibit a strong external locus of control point of view.
Three schools of entrepreneurial thought represent a breakdown of the macro view: (1) the environmental school of thought; (2) the financial/capital school of thought; and (3) the displacement school of thought. The first of these is the broadest and most pervasive school.
The environmental school of thought deals with the external factors that affect a potential entrepreneur’s lifestyle. These can be either a positive or a negative force in the moulding of entrepreneurial desires. The focus is on institutions, values and mores that, grouped together, form a socio-political environmental framework that strongly influences the development of entrepreneurs. For example, if a middle manager experiences the freedom and support to develop ideas, initiate contacts or create and institute new methods, the environment will serve to promote that person’s desire to pursue an entrepreneurial career. Another environmental factor is the social group environment that often affects the potential development of entrepreneurs. The atmosphere of friends and relatives can influence the desire to become an entrepreneur.
The financial/capital school of thought is based on the capital seeking process. The search for seed capital and growth capital is the entire focus of this entrepreneurial emphasis. Certain literature is devoted specifically to this process, whereas other sources tend to treat it as but one segment of the entrepreneurial process. In any case, the venture capital process is vital to the development of an entrepreneur. Business planning guides for entrepreneurs emphasize this phase, and there are development seminars focusing on the funds application process. This school of thought views the entire entrepreneurial venture from a financial standpoint.
The displacement school of thought focuses on group phenomena. It holds that the group affects or eliminates certain factors that project the individual into an entrepreneurial venture. Individuals will not pursue a venture unless they are prevented or displaced from doing other things. Three major types of displacement illustrate this school of thought.
- Political displacement. This type of displacement is caused by factors ranging from an entire political regime that rejects free enterprise (international environment), to government regulations and policies that limit or redirect certain industries.
- Cultural displacement. This type of displacement deals with social groups precluded from professional fields. Ethnic background, religion, race and gender are all examples of factors that figure in the minority experience. Increasingly, this experience will turn various individuals from standard business professions towards entrepreneurial ventures.
- Economic displacement. This type of displacement is concerned with the economic variations of recession and depression. Job loss, capital shrinkage, or simply bad times can create the foundation for entrepreneurial pursuits, just as it can affect venture development and reduction.
The micro view
The micro view of entrepreneurship examines the factors that are specific to entrepreneur-ship and are part of the internal locus of control. The potential entrepreneur has the ability to direct or adjust the outcome of each major influence. In this view are presented the entrepreneurial trait theory, the venture opportunity theory, and the strategic planning theory. Unlike the macro approach, which focuses on events from the outside looking in, the micro approach concentrates on specifics from the inside looking out. The first of these schools of thought is the most widely recognized.
Since many researchers and writers have been interested in identifying those traits that are common to successful entrepreneurs, the entrepreneurial trait school of thought is grounded in the study of successful people who tend to exhibit similar characteristics that, if copied, would increase success opportunities for the emulators. For example, achievement, creativity, determination and technical knowledge are four factors that are usually exhibited by successful entrepreneurs. Family development and educational incubation are also examined. Researchers contend that new programmes and new educational developments are on the increase because they have been found to aid in entrepreneurial development. The family development idea focuses on the nurturing and support that exist within the home atmosphere of an entrepreneurial family. This reasoning promotes the belief that certain traits, that are established and supported early in life, eventually lead to entrepreneurial success.
The venture opportunity school of thought focuses on the opportunity aspect of venture development. The search for sources of ideas, the development of concepts, and the implementation of venture opportunities are the important areas of interest for this school. Creativity and market awareness are viewed as essential. Additionally, according to this school of thought, developing the right idea at the right time for the right market niche is the key to entrepreneurial success.
Another development from this school of thought is the corridor principle. New pathways or opportunities will arise that lead entrepreneurs in different directions. The ability to recognize these opportunities when they arise, and to implement the necessary steps for action, are key factors. Proponents of this school of thought believe that proper preparation in the interdisciplinary segments of business will enhance the ability to recognize venture opportunities.
The strategic formulation school of thought emphasizes the planning process in successful venture development. Strategic formulation can be viewed as a leveraging of unique elements. Unique markets, unique people, unique products or unique resources are identified, used or constructed into effective venture formulations. The interdisciplinary aspects of strategic adaptation become apparent in the characteristic elements listed below.
- Unique markets. Mountain versus mountain-gap strategies, which refers to identifying major market segments as well as interstice (in between) markets that arise from larger markets.
- Unique people. Great chef strategies, which refers to the skills or special talents of one or more individuals around whom the venture is built.
- Unique products. Better widget strategies, which refers to innovations that encompass new or existing markets.
- Unique resources. Water-well strategies, which refers to the ability to gather or harness special resources (land, labour, capital, raw materials) over the long term.
Without question, the strategic formulation school encompasses a breadth of managerial capability that requires an interdisciplinary approach.
While the knowledge and research available in entrepreneurship is in an embryonic stage, it is still possible to piece together and describe current schools of thought in the field. From this point we can begin to develop an appreciation for the schools and view them as a foundation for entrepreneurial theory.
4 Process approaches
Another way to examine entrepreneurial activities is with a process approach. Unique to the process approach is its major focus on the start-up of a venture. Process approach models developed by various researchers are interdisciplinary because entrepreneurship includes factors from numerous disciplines. These process approaches attempt to be integrative, while focusing on individual elements that harmoniously fit together. There are many methods and models that try to structure the entrepreneurial process and its various factors. For example, the assessment approach, developed by Ronstadt (1984), stresses assessments that must be made qualitatively, quantitatively, strategically and ethically with regard to the entrepreneur, the venture and the environment. The results of these assessments must be compared with stages of the entrepreneurial career early, mid-career or late. This process is called the entrepreneurial perspective.
A more detailed process approach to entrepreneurship is the multidimensional approach. From this viewpoint, entrepreneur-ship is a complex, multidimensional framework that emphasizes the individual, the environment, the organization and the venture process.
The process approaches to studying entrepreneurship illustrate that three distinct variables are critical to any analysis: the individual, the venture and the environment. However, the stages of any venture (idea, pre-venture, start-up, early growth, harvest) are also critical to new venture analysis. In addition, a career perspective should be considered, which means that the entrepreneur’s career stage (early, middle or late) can be a decisive factor in differentiating the variable within the venture development stages. Thus, it may be necessary to visualize entrepreneurial strategies as contingencies. In other words, all of the evolving and emerging conditions involved with any entrepreneurial pursuit cause a constant dynamism. If newly emerging entrepreneurial issues such as global expansion, the growth in numbers of women entrepreneurs and corporate entrepreneurship are also introduced, then a model of entrepreneurial strategy would be multidimensional, multi-staged, and contingency-based.
- What do you think is meant by the term 'entrepreneurial spirit'?
- Why is there no clear cut definition for an entrepreneur?
- Explain three myths of entrepreneurship.
- What is the key difference between the macro and micro view to entrepreneurship?
- What three variables are critical to the process approaches to entrepreneurship?
Research two different entrepreneurs and compare and contrast the entrepreneurs and their businesses in terms of the individual, the venture and the environment.
This is an extract by Donald F. Kuratko from Volume 2 of the IEBM.